Monetary policy and inequality: Distributional effects of asset purchase programs

Irfan Cercil and Gorkem Aksaray

Journal of International Money and Finance, 2025, vol. 157, issue C

Abstract: Income and wealth inequality have been steadily rising in developed countries since the 1970s. Unconventional monetary policy has recently come under increasing scrutiny for its role in exacerbating this trend. In response to the 2008 global financial crisis, central banks in many developed countries have started to engage in large-scale asset purchase programs (APPs), also known as quantitative easing (QE), to stimulate their economies. This paper investigates how these programs have influenced inequality. Using panel data from 49 countries between 1999 and 2019, we apply local projections (LP) method to estimate the average treatment effect (ATE) of APPs on income and wealth inequality. To address endogeneity, we use propensity scores and the augmented inverse probability weighting (AIPW) estimator. Our results reveal a discernible relationship between APPs and increased inequality. Specifically, we find that while the impact of APPs on income inequality fades over time, their effect on wealth inequality is more pronounced and persistent. Our research contributes to the ongoing debate about the distributional consequences of monetary policy, offering practical insights for policymakers.

Keywords: Monetary policy; Asset purchase programs; Quantitative easing; Income and wealth inequality; Panel data methods; Propensity scores; Local projections (search for similar items in EconPapers)
JEL-codes: C21 C23 D31 E52 E58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:157:y:2025:i:c:s0261560625001196

DOI: 10.1016/j.jimonfin.2025.103384

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